Britam launches mortgage product

Buying a house has been made easier after the introduction of an insurance cover that will give consumers access to mortgages without paying the initial deposit.  

The product by British-American Insurance, dubbed ‘Collateral Replacement Indemnity (CRI)’, will cover against the collateral needed and the lenders will to provide the loan.

“This is a cover for mortgage-lenders. One of the consequences of a fast growing economy is that the housing need in the country has outstripped its supply. The product will address the current situation,” said Britam’s managing director Steve Wandera.

The product, which borrowed its model from South Africa, will offer the mortgage firms with the opportunity to provide 100 per cent financing to their clients.

“Most people, even if they have the ability to finance mortgages are unable to pay the up-front deposit which translates to about 20 per cent of the house cost. With this product, the borrower does not have the added burden of saving for the deposit,” added Mr Wandera.

The initial cash requirement has been a major hurdle for consumers wishing to own a house during the course of their employment.

The market lenders in the country usually finance up to 80 percent of the value of the property, leaving the borrower with the task of raising the remaining 20 percent and additional closing costs estimated at 10 percent of the value of the home.

Protect against default

For example, if a potential consumer wishes to buy a home worth Sh3 million they will be financed to a tune of Sh2.4 million and left to raise Sh600,000 to cover the deposit and closing costs.

The lender, upon the purchase of the cover, will be protected against default that may result from a consumer.

When default occurs, the mortgage firm will sell the property and seek compensation if the house is sold for less than its purchase price.

Recently, the government made some significant changes to the Retirement Benefits Mortgage Loans regulations as it sought to increase the numbers of home owners in the country.

The changes allowed borrowers to use their accrued retirement benefits as a collateral to secure deposits for mortgages.

The CBK survey shows that the mortgage market is growing with the value of mortgage loan assets outstanding having increased from Sh61.4 billion in May 2010 to Sh91.2 billion in December 2011, which is a 48.5 per cent.

The growth is attributed to the rising middle income class, increased financial literacy, and the devolved government.